LNG update: a review of 2018 and the mid-term fundamentals

In this research report, we look back at key developments in the LNG market through 2018, and the impact that these have had on regional gas prices. We then turn to our outlook for the coming years, including an update on Chinese LNG demand and on the liquefaction projects looking to reach final investment decision (FID) in the current investment cycle. Global gas prices (in Europe and Asia) have been on a downward tilt so far this year, following on from a weak fourth quarter, and are currently trading at multi-year lows. We estimate the global LNG market was oversupplied by 25 bcm in 2018, as supply from newly commissioned trains overwhelmed demand from North-East Asia (which still recorded robust growth). LNG was thus forced to price into the flexible European market, firstly into storage and then into the power sector. However, with elastic demand from coal to gas switching proving hypothetical, European prices have yet to find a floor, continuing their downward trend into 2019. Looking forward, the market continues to look oversupplied for the entire of our forecast horizon out to 2025. This paints a bearish picture for regional gas prices in Asia and Europe, with an adequately supplied Asian market meaning surplus Atlantic cargoes will continue to be pushed into the European market, weighing on prices. We look likely to be heading for a period of lower for longer prices. In our forecast , we assume that a further four greenfield (in Mozambique, Russia and the U.S.) and six brownfield projects (in the U.S., Mexico, PNG, Qatar, Nigeria and Russia) reach FID in the current investment cycle, adding to commitments already reached in North America (Canada LNG, Golden Pass, Calcasieu Pass). This significantly boosts liquefaction capacity growth towards the end of our forecast period and into 2030. On the demand side, the majority of growth continues to come from the Asian market, although Chinese demand growth begins to stall at the start of the next decade due to slowing domestic gas consumption, increased domestic production and the start of the P ower of Siberia pipeline.